Insurance Regulatory Landscape and Key Considerations for M&A Transactions | Philippines | Asia Pacific Insurance

Who is the main regulator with oversight of insurance companies?

Insurance Commission (IC)

Are there foreign ownership limitations for insurance companies? Are there shareholding caps on individuals and/or corporate bodies for insurance companies? If in the affirmative, is this encapsulated within statute or a matter of policy?

No.

Can an insurance company carry on a composite business (i.e., life and non-life)? Is this encapsulated in statute or a matter of policy?

Yes (a matter of law), if the insurer has been specifically authorized to do so by the Insurance Commission.

Are there other conditions imposed by the regulator in doing an M&A transaction?

The acquisition of control of a domestic insurer requires the prior approval of the Insurance Commissioner. Moreover, the Insurance Commissioner may refuse to issue a Certificate of Authority to any insurance company if, in its judgment, such refusal will best promote the public interest. No Certificate of Authority is granted to any such company until the Insurance Commissioner has satisfied itself that the company is qualified by law to transact business, that the grant of such authority appears to be justified in light of economic requirements, and that the direction and administration, as well as integrity and responsibility of the organizers and administrators, the financial organization and the amount of capital reasonably assure the safety of the interests of the policyholders and the public.

Is dispensation given for fulfillment of these conditions and in what circumstances?

Generally no.

Is there a single presence policy and is it imposed under statute or policy? Is dispensation given and what criteria will the regulator consider?

Yes, under Philippine insurance law and regulation, a foreign insurance company may only invest in or establish a single insurance company, through one of the following modes of entry:

Ownership of the voting stock of an existing domestic insurance company
Investment in a new insurance company incorporated in the Philippines
Establishment of the branch

What approvals are required for a foreign entity to take a stake in an insurer? Is there a distinction between a share deal or an asset deal?

Prior written approval of the Insurance Commissioner is required for a share deal or an asset deal resulting in the acquisition of control of a domestic insurer. In a share deal, approval is required in order to acquire 40% or more of the voting stock of a domestic insurer.

How long will regulatory approvals typically take for a share deal versus an asset deal?

Regulatory approvals range from one to six months, depending on the availability of supporting documents. No distinction is made between share and asset deals.

How open is the regulator to private equity participation in an insurer?

Generally, it is open to private equity participation, given the government’s thrust to attract foreign direct investment, and because of its policy not to impose limits on foreign equity ownership in a domestic insurance company.

Is there a financial holding company concept (FHC) or other equivalent status? What are the implications?

Yes, there is a "holding company system" concept under the Amended Insurance Code. An insurer controlled directly or indirectly by a holding company is subject to registration, reporting, and other requirements imposed by the Insurance Commission. "Control" means power to direct, or cause the direction of the management and policies of the domestic insurer, and is presumed to exist when one person/entity owns, controls or holds, directly or indirectly, 40% or more of the voting shares of the domestic insurer.

The Insurance Commissioner will consider the following:

The financial condition of the acquiring person and the insurer
The trustworthiness of the acquiring person or any of its officers or directors
A plan for the proper and effective conduct of the insurer's operations
The source of the funds or assets for the acquisition
The fairness of any exchange of stock, assets, cash or other consideration for the stock or assets to be received
Whether the acquisition will substantially lessen competition in any line of commerce in insurance or tend to create a monopoly therein
Whether the acquisition is likely to be hazardous or prejudicial to the insurer's policyholders or stockholders

What are the typical modes of distribution for insurance companies?

Agency force and brokers

Is bancassurance a popular mode of distribution? What approvals are required? What are the main parameters in negotiating a bancassurance agreement?

Yes, bancassurance is a popular mode of distribution.

Prior approval of the monetary board is required before banks may be used as outlets for the presentation and sale of insurance products. The insurance products to be cross-sold must have been previously approved by the Insurance Commissioner.

Moreover, the bank and the insurer must belong to the same financial conglomerate (i.e., a group of interrelated entities promoting significant services in at least two of the following financial services: banking, securities, and insurance).

The salient terms are:

Exclusivity
Term and renewal
Presentation and sale of products
Remuneration
Grievance mechanism
Consumer protection requirements
Limited role of bank employees
Risk allocation

What are the top challenges in closing an insurance M&A transaction (share deal versus asset deal)?

Share and asset deals

Compliance with documentary and other submissions may be required by the Insurance Commission
Obtaining a tax clearance in order for the share or asset deal to be consummated
Valuation of the assets in an asset deal could be time-consuming and needs to be vetted by the Securities and Exchange Commission

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Philippines

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